Shale play turns Karnes County around, but not without trouble

Published 6:49 pm, Saturday, February 23, 2013

Retired pharmacist Paul Bordovsky, 90, is one of many Karnes City residents wearing smiles since the Eagle Ford Shale play began pumping out oil wealth.

Retired pharmacist Paul Bordovsky, 90, is one of many Karnes City residents wearing smiles since the Eagle Ford Shale play began pumping out oil wealth.

Photo: Jerry Lara

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Martin Herrera, 49, in apron, sets up his taco tent in Kenedy at 4 a.m. most weekdays. "I follow the money," says the San Antonio entrepreneur, who'll sell up to 500 tacos to oil field workers.

Martin Herrera, 49, in apron, sets up his taco tent in Kenedy at 4 a.m. most weekdays. "I follow the money," says the San Antonio entrepreneur, who'll sell up to 500 tacos to oil field workers.

Photo: Jerry Lara

Image 3 of 4

Martin Herrera, 49, in apron, sets up his taco tent in Kenedy at 4 a.m. most weekdays. "I follow the money," says the San Antonio entrepreneur, who'll sell up to 500 tacos to oil field workers.

Martin Herrera, 49, in apron, sets up his taco tent in Kenedy at 4 a.m. most weekdays. "I follow the money," says the San Antonio entrepreneur, who'll sell up to 500 tacos to oil field workers.

Photo: Jerry Lara, Staff

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David Jalufka, 62, spent decades with the Department of Public Safety and as Karnes County sheriff. Now he enjoys spending time with his grandsons, 7-year-old Rancher, left, and Utah, 9.

David Jalufka, 62, spent decades with the Department of Public Safety and as Karnes County sheriff. Now he enjoys spending time with his grandsons, 7-year-old Rancher, left, and Utah, 9.

Photo: Jerry Lara, Staff

Shale play turns Karnes County around, but not without trouble

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KARNES CITY - After more than three decades of running City Pharmacy on slowly decaying Main Street, Paul Bordovsky retired in 1995 to raise his Charolais cattle on 640 acres of rolling grassland a few miles east of town.

One day in early 2008, after hauling a couple of young bulls to a sale in Cuero, he called his wife, Emily.

"I said, 'I've got some real good news. I got $3,000 or $4,000 for those bulls,' " he recalled.

"And she said, 'I've got better news for you. Conoco has called twice already. They're coming out here to stake a well.' "

Little could the Bordovskys or anyone else in Karnes County have grasped the implications of Conoco-Phillips' secretive decision to drill a deep, expensive well into the mysterious formation known as the Eagle Ford Shale.

Over the decades, other energy leases on their land on FM 81 had come up dry. The thought of someone tapping a mother lode under that pasture was exciting, even if expectations were low.

"I had no reason to think this would be any different. I'm not that big a dreamer," Bordovsky said.

But this was very different. The boom that followed Conoco-Phillips' strike upended sleepy Karnes County. Thousands of workers have poured in, an untold number of ranchers became multimillionaires, main streets boast new businesses and hard work routinely begets six-figure salaries.

The boom also has brought dangerous roads, economic inequity, social disruption and overtaxed infrastructure in a once-poor region.

All of this was unimaginable in 2008, when Karnes County was a very marginal energy player, producing about 20,000 barrels of crude a month. Few here had even heard of the Eagle Ford Shale, a formation that had always clung tightly to its treasures.

As they had for decades, most people in Karnes County were still scraping by on ranching, prison jobs or dry-land farming of corn and grain sorghum. The fortunate had steady jobs with the county or school districts.

And like a banker or doctor, a small-town druggist comes to know his people well.

"For a long time, we saw everyone in town twice a day. We had a busy fountain. Lots of coffee drinking," said Bordovsky of the early years. "Back then, there was lots of welfare. Lots of Medicaid. I saw it at the store. And we had lots of tuberculosis and stomach worms because of the poverty."

Keeping even the landowners in the dark, Conoco-Phillips took about a year and a half to drill and frack the first deep horizontal well in Karnes County.

"They told us it would be a very tight hole. Don't ask any questions," Bordovsky recalled.

But the so-called discovery well for the Eagle Ford Shale in Karnes County proved to be a good producer, generating both gas and more than 130,000 barrels of condensate, with the Bordovskys soon cashing big checks.

It also brought rapid change to the rural landscape, as Bordovsky's roadside pasture on FM 81 is now jammed with construction workers, heavy equipment, huge storage tanks and complex piping.

A constant stream of tank trucks now delivers freshly pumped crude to new transfer stations operated here by Koch Pipeline and Conoco-Phillips on land bought from Bordovsky.

New pipelines cross his ranch, leaving lanes of bright green grass. Two more wells will soon be drilled on the backside, near the creek, and Bordovsky is also selling more roadside acreage to energy companies.

And, like most others here, he considers the trade-off well worth it.

"It's been good to me. I miss that pasture, but I could have ranched here for 300 years and not have the income we do now," he said. "Anyone who owns property should be benefiting."

Fueling new wealth

Talk to any mover and shaker in Karnes County, and two assertions are likely to be heard. The first: Karnes was long the poorest non-border county in Texas. The second, often delivered with pride, is that it is now ground zero for the shale play that is rapidly transforming much of South Texas. While proof of the first is elusive, there is little argument with the second claim.

In the last four years, more than 1,200 drilling permits have been approved for Karnes County and about 2,000 miles of new pipeline have been laid. Karnes is now one of the top crude producers in Texas. In November, it was first again, with almost 3 million barrels pumped.

Simple math shows the staggering wealth pouring into the county.

With oil in November bringing about $97 a barrel and with typical royalties of 25 percent, roughly $70 million was paid to landowners for just that month's production, not to mention the many millions more spent here monthly by energy companies and their employees.

The boom has increased the county's population by about 70 percent as camps for workers and RV parks are popping up in every nook and cranny.

Traffic counts on some highways have increased by 300 percent with predictable, tragic results. In the past two years, at least 18 people died in accidents in the county. In the three years prior, only five died.

Deposits at the Karnes County National bank have doubled in three years. The county's tax base has increased from $562 million to $3.1 billion in two years. The value of some prime commercial real estate has jumped tenfold.

"This is the sixth oil boom I've seen and this one is gigantic compared to any of the others. It will end, but not like the others. With all this pipeline infrastructure they're putting in, we know it's here for a long time," said County Commissioner Peter Jauer, 72, a Karnes County native. "But it's changed the county. It's not the simple country atmosphere it was."

Huge headaches, too

County Judge Barbara Shaw said the boom has bailed the county out of its chronic financial woes, but has also brought two huge headaches: The ongoing destruction of roads by heavy equipment and dangerous highways.

"My problem is I have $18 million sitting in the bank but I have at least $100 million in road damage," said the judge.

Karnes has joined forces with other Eagle Ford counties and hired an Austin lobbyist to press for legislation that would provide financial relief. Presently, the state keeps the tens of millions collected from energy companies in oil and gas taxes.

But, Shaw said, even with the many problems it brings, the boom is a godsend.

"It's just going to get better and better. In five years, Karnes County will be extremely prosperous," the judge predicted.

Settled by successive waves of Poles, Germans, Czechs, Mexicans and Bohemians in the late 1800s, Karnes County then had a reputation as a lawless outpost.

Before agriculture took root a little over a century ago, it was open-range cattle country. The longhorns driven north over the famed Chisholm Trail to Kansas brought the first big surge of wealth.

After the railroads came through in the 1880s, commerce shifted to farming, and settlers began pouring in. In the first part of the 20th century, when cotton was king, Karnes County enjoyed several decades of prosperity.

After the Great Depression, however, the county entered a long-term economic decline, broken only by occasional oil booms and several decades of uranium mining near Falls City.

The county reached its peak population of 23,316 residents in 1930. In the 2010 census, Karnes County had 14,824 people, but that included 3,195 inmates at two correctional facilities.

'Everything changed'

Historian Robert Thonoff, 83, who came to the area in 1953 to teach school, was recently forced to move away after his daughter Margaret and two others died in an accident involving an 18-wheeler.

"We were very happy living in Karnes City. We had a nice home and a nice community," he said. "Our daughter was our caretaker. When she was killed, everything changed for us."

And, he said, this madcap boom will likely play out like the others before.

"When the drilling stops, the population will decline," Thonoff declared. "Life has changed dramatically for everyone, and it's been a mixed blessing."

Cashing in

So far, the old money in Karnes City has been slow to embrace new development and the town still wears a listless, beaten-down look. Six miles away in Kenedy, a rival in everything from high school sports to commerce, things are hopping.

Five new motels have already been built on U.S. 181, two 100-acre mixed-use development projects are coming, as is a large new H-E-B.

Unfamiliar new commerce has also come to town, including a Merrill Lynch office, a pawn shop, personal injury lawyers from San Antonio, plus 24-hour drug-testing outfits and a check-cashing van that appears periodically beside U.S. 181.

Even the long-dead Rialto Theater, which opened on Main Street in 1935, is being reclaimed from the pigeons and the rot.

"A local lady told me the last movie that played there was the second 'Star Wars' film, which was around 1980," said Houston developer Walter Chance, who is gutting the Rialto for offices and apartments.

"This is going to go on for decades. It's time for people to realize this is not a flash in the pan," said Chance, 54, who is also developing a retail site on U.S. 181.

Just down the block is proof that even entrepreneurs who are light on capital are cashing in.

"I follow the money. I started coming down in May," said Martín Herrera, 45, who brings tacos in from San Antonio five mornings a week for sale outside a welding supply shop. At 5 a.m., the line of hungry oil field workers stretches across the parking lot. "On a good Friday, I sell up to 500 tacos," said Herrera.

For the first time in decades, there are well-paying jobs for almost anyone who wants to work and can pass a drug test. Hiring signs are every­where. A remark often heard is that there are no unemployed people left in Karnes County, only the unemployable.

"A $20-an-hour job was once unheard-of in this county. The part that is most exciting is that if a person wants a job, they can get one and you can work as many hours as you want. This is the American Dream personified," said Herb Hancock, 71, the newly elected county attorney.

"A kid can leave a $40,000 overtime job at the prison and make over $100,000 in the oil field. You've got kids coming home to work here who haven't lived here in a long time," he said.

The price of growth

While few people here pine for the hard old days, when teenagers left after graduation and it took two outside jobs to hold onto the old family spread, there are obvious downsides to the boom.

For those who do not own a home or property, are unable to work, are retired or simply value the quiet and intimacy of a small town, the shale play can be a curse.

"You have a lot of people making a lot of money, but basically, it's the people who had money to begin with - people with land, cattle, crops and government subsidies," said Ken Riley, a Kenedy City Council member.

Just about every morning, Homer Lott, the former mayor of Runge, makes the 15-mile drive to eat tacos with the coffee crowd at Becky's Café in Karnes City. He passes the Bordovsky place on each trip down FM 81.

"There used to be cattle in that pasture. Now it looks like refinery city. It won't be long before FM 81 becomes the refinery corridor," said Lott.

And while Lott, 65, is also cashing nice royalty checks, he worries about what the future might bring, from water contamination to destruction of the countryside.

"What we know as farm-and-ranch country will be totally transformed. It will not look like this in 10 to 20 years," he suggested.

The important question, said Lott, is whether anyone is looking down that road.

"You can't stop change. But is there a plan in place for the transformation? Do people even realize it is happening? I don't know if anyone has anything in place to handle it. Somebody needs to start thinking about it," he said.

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